Q3 2021 M&A Activity

6 Oct


Q3 2021 M&A Activity

Fewest announced change of control transactions in over a decade

Absence of small- and mid-sized community hospitals weighs down quarterly totals to lowest amount since Q4 2009.

Q3 Announced Hospital Change of Control Transactions

Q3 Hospital Change of Control Transactions

Q3 Announced Hospital Change of Control Transactions

Beginning with a slow pace in July and August with only four announced transactions, activity declined in Q3 2021 with 12 announced transactions, which is the lowest quarterly total since Q4 2009. The quarterly volume amounts to less than half of average quarterly announced transactions since 2009 (24.3). The recent quarter’s activity declined 14% year-over-year from Q3 2020, which at 14 announced transactions had previously been the quarter with the lowest activity levels in the past ten years.

For-profit health systems announced four acquisitions in the quarter which at 33% of quarterly volume is proportionally in line with historical data dating back to 2009 (36%) and exceeds the recent five-year trend of for-profit acquirers comprising 22% of acquisitions. The publicly traded cohort announced two acquisitions in the quarter, the first announced acquisitions from this group in calendar year 2021. The cohort continues to be active in divestitures with seven transaction announcements in 2021 (totaling 14 hospitals) including two divestitures by QHC in the recent quarter. However, a noticeable trend is that Q3 was the third quarter in a row in which there were no acquisitions of not-for-profit hospitals by the publicly traded hospital group.

Absence of Small- and Mid-Sized Community Hospital Transactions

Q3 2021 marked the first quarter since Ponder has tracked this data in which there were zero announced acquisitions of target hospitals that had revenue between $50 million and $150 million. Since 2009, these hospitals have amounted to 28% of all acquired hospitals and in certain quarters these hospitals have represented 50% or more of quarterly volume.

Surprising Effect of Pandemic

COVID disrupted normal operations and had a significant impact on volumes; however the pandemic relief funding was a major lifeline for health systems. Below are updates from recent Moody’s research:

  • Grant funding represented 43% of operating cash flow recognized in 2020
  • Unrestricted cash balances grew nearly 30% from the prior year after averaging a growth rate of 7.5% for the previous three-year period

The net result is that many health systems’ balance sheets are better than they were pre-pandemic.

Mega-Merger Activity Despite Drop in Announced Number of Transactions

Two mega-mergers (target hospitals with greater than $1 billion in revenue) were announced in the recent quarter.

  • Beaumont Health and Spectrum Health executed an affiliation agreement currently under regulatory review to create Michigan’s largest private employer, following Beaumont’s failed merger attempts with Summa Health and later Advocate Aurora
  • Edward-Elmhurst Health (IL) announced it will be joining NorthShore University HealthSystem to create a nine-hospital health system

In addition, as discussed below, SCL Health with $2.8 billion in net revenue announced an LOI with Intermountain Healthcare. Although not mega-mergers, Piedmont Healthcare’s merger with University Health Care System and HCA’s announced acquisition of five hospitals from Steward Healthcare are major transactions. This activity clearly shows that key strategic transactions continue despite a drop in volume.

Other Affiliation Activity in Q3


  • SCL Health and Intermountain Healthcare announced an LOI to create a 33-hospital system
  • Capital Health (NJ) affiliated with Temple University Health System for its transplant program


  • St. Peter’s Health Partners (Trinity Health) pivoted to a management agreement with Ellis Medicine following an LOI towards merger initially announced in October 2020
  • San Joaquin General Hospital (CA) announced an LOI with Dignity Health


  • Tower Health (PA) and Penn Medicine announced an LOI towards a strategic alliance that does not contemplate change of control
  • Tower Health LOI to transfer Chestnut Hill Hospital to Trinity Health
  • Garrett County Memorial Hospital announced an LOI to join WVU Health System
  • Centra Health (VA) announced a clinical affiliation with UVA Health
  • Campbell County Health (WY) approved a management services agreement with UCHealth

Is M&A dead for now? When will it return?

Due to the government financial relief received by health systems, many independent hospitals and health systems have not been forced to make tough decisions. They continue to study and evaluate options, but the urgency is not there, and the focus has been COVID. It is very unclear in terms of when we will really come out of the pandemic, when the government support will stop, when there is a return to normalcy.

Ultimately, though, the same pressures on health system that existed pre-pandemic will return, possibly with more force:

  • Organic volume growth is very challenging as admissions will return to their decline, shift to outpatient continues and competition among systems continues to heighten
  • Employers and governments will return to pushing for ways to control the healthcare spend
  • Focus on value-based models continue to emerge, but payment system still not aligned
  • Private equity and technology becoming significant disruptors

But the question still remains—when exactly does health system consolidation pick back up? How will increasing levels of regulatory scrutiny and heightened focus on hospital consolidation by the FTC affect consolidation?